Enhanced earning capacity is the additional income that is (theoretically) available to someone as the result of having acquired a degree or a license during the course of his or her marriage. In order to constitute marital property, and therefore be subject to equitable distribution in a divorce, the license or degree must be attributable to a course of study or other efforts by the titled spouse, at least a part of which was undertaken during the marriage.
Although at first enhanced earning capacity was limited to licenses and degrees, over the years, the courts have expanded its scope to include such things as a permanent certificate in school administration, a medical board certification, a podiatry practice, the professional goodwill of a stockbroker, and even a career as a model and actress.
For purposes of valuation, enhanced earning capacity is the present value, after tax, of the "incremental income" an individual presumably will earn over his expected work life as a result of additional education or training achieved during the marriage. Incremental income is the difference between the expected earnings without the enhanced earning capacity (called "base-line earnings") and anticipated income with the enhanced earning capacity (called "top-line earnings"). The typical methodology for the valuation of enhanced earning capacity is to deduct the baseline earnings from the topline earnings, then project the difference over the expected work life, and finally reduce the total to present value.
Contribution by the Non-Titled Spouse
A non-titled spouse who wants to maximize his or her distributive share of the other spouse's enhanced earning capacity must demonstrate that he or she made a substantial contribution to the titled spouse's acquisition of the degree, license, career, etc. If the non-titled spouse has made only modest contributions and the attainment is more directly the result of the titled spouse's own ability, perseverance and hard work, courts tend to limit the distributed amount (i.e., the percentage) of that enhanced earning capacity.
Often, the value of a party's enhanced earning capacity will run into the hundreds of thousands or even millions of dollars. In some marriages, particularly short-term marriages of new professionals, such as doctors, lawyers and accountants, the enhanced earning capacity of one of the parties is the most valuable asset available for equitable distribution. New York's highest court has described the case law surrounding enhanced earning capacity as "experimentation and creative problem-solving." It might more accurately be described as sheer speculation and educated guesswork. Whether or not you are the titled spouse, it is essential that you provide complete information as soon as possible to your attorney in order to protect your rights regarding this valuable asset.
Additional resources provided by the author
Understanding Enhanced Earning Capacity, Aspatore Books (West Publishing) 2012
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